Japan’s blurry vision for the future of capitalism

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The best political slogans are simple and direct: think “It’s the economy, stupid” or former British leader Tony Blair: “Tough on crime, hard on the causes of crime”.

Japanese politicians usually don’t excel at these sound bites. This is what made the “Three Arrows” of Abenomics by former Japanese Prime Minister Shinzo Abe so remarkable – using a simple folk tale, they explained a complex recipe for monetary, fiscal and sideways solutions. supply aimed at reviving the Japanese economy, resonating with investors both at home and abroad.

Fumio Kishida, Japan’s current leader, last week launched what he called the “Grand Design” for his “New Form of Capitalism”, a doctrine he has promoted since becoming leader of the Japan in October. The Draft Policy Plan is many things, but simple and straightforward is not one of them. Watered down, muddled, and both confusing and a little confusing, Kishida’s flagship economic policy could learn a lot from the Three Arrows.

The Grand Design is a 34-page outline of policy recommendations by a panel Kishida formed to flesh out his concept of a new capitalism. This is what Kishida calls his overarching economic thesis which, in essence, rejects the neoliberal consensus of looser regulation and empowerment of markets, which has been the standard recipe suggested for revitalizing the Japanese economy over the years. of the last two decades. Instead, it emphasizes greater government cooperation and oversight, as well as redistributing money to working people to close the growing gap between rich and poor.

The initial reaction to new capitalism last year was unenthusiastic. Shares fell shortly after his nomination at an event dubbed “Kishida Shock”. His suggestion to raise capital gains taxes, focus on redistribution and his seemingly dismissive attitude towards dividends sent a chill to the markets, with just 3% of investors in a January poll saying they backed him. .

One of Kishida’s most telling remarks came in February, when he talked about the company’s profits being “lost” to shareholders in the form of dividends. Kishida and his lieutenants have since sought to reverse the perception that he is anti-market, with the Prime Minister’s May speech in London outlining his pro-market views and asserting his credentials as a former banker.

This reversal seems evident in the “Grand Design”, Kishida’s latest attempt to better articulate his vision and translate it into real policies. It begins by dramatically presenting New Capitalism as the successor ideology to the welfare state capitalism and neoliberalism that dominated the post-war period, and warns of the damage done in recent years by giving too much market power.

But leaving aside the merits of this vision, the actual policies proposed in the Grand Design fall between two stools. There are few concrete policies to raise wages, which Abe has failed to do. Missing is any reference to raising capital gains tax, with the strategy instead promising to boost household investment in assets through tax-exempt accounts – although Kishida further muddied the cards telling parliament that a capital gains tax hike was still under discussion.

There is a hodgepodge of sound policy ideas, such as boosting support for startups and investing in growth areas such as AI and quantum computing, as well as fancier concepts such as web3 , NFTs, SPACs, and the Metaverse. A long-standing goal of transforming Japan into a financial center is given in nine lines of text.

What does it mean? Has Kishida, a self-proclaimed “good listener” who likes to travel the country hearing feedback from voters, adjusted his policies after they initially failed? Is he waiting, as many suspect, for upper house elections slated for next month before showing his hand on potentially unpopular issues like taxes?

No one is quite sure. As a result, reception was cut off. The left-leaning Tokyo Shimbun attacked Grand Design, saying “Kishida’s distribution policies have taken a big step backward.” The right-wing Yomiuri Shimbun doesn’t like him either, accusing him of further deepening the confusion around his original politics.

A good political message is not easy. Abe himself made similar mistakes when he launched a long-forgotten second quiver of Abenomics arrows in 2015, a jumbled mess of narrowly focused childcare and social security stages. They failed to resonate with audiences and were quickly rejected.

For now, Kishida is flying high in the polls. But it is precisely this popularity, bolstered by his tough stance on Ukraine and his general lack of baggage, that gives him an almost unprecedented platform to enact some of the tough changes Japan needs.

There are good ideas in the new capitalism. Kishida is right to focus on raising wages, especially with inflation finally rising. He is also right to seek a new political recipe and not simply imitate past approaches. And the emphasis on “stakeholder capitalism” could both align with global trends and offer some of the best of Japan’s approach to the world.

But too much of the first incarnation of new capitalism last year sounded like solutions for another country, emphasizing issues like corporate short-sightedness and excessive payouts to shareholders that primarily afflict American companies, not Japanese ones. Now Grand Design has come up with a solution that feels a little too Japanese – with Kishida’s supporters and critics saying she feels too close to parts of Abenomics.

Abe’s initial three arrows may not have fixed Japan, but the policy succeeded in halting deflation and putting Japan on a growth path. Although Kishida comes from a different ideological stock, he has yet to find a way to distill his vision into clear messages and policies that workers and businesses can adopt.

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Gearoid Reidy is a Bloomberg News editor covering Japan. He previously led the breaking news team in North Asia and was the deputy chief of the Tokyo bureau.

More stories like this are available at bloomberg.com/opinion

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